Apparently, the cost of living is 77% higher for the over 75′s. And this clearly begs the question as to whether the income from a pension annuity, even with the best annuity rates at the time, is sufficient for their needs.
These older people face a rate of inflation that is 77% higher than people under the age of 30, according to new research. The Consumer Prices Index (CPI), which is the official rate of inflation used by the Bank of England to set their base rate, fell to 2.3% in April this year, down from 2.9% the previous month and the peak of 5.2% last September. The Retail Prices Index (RPI) also experienced a dramatic fall during the month of April. It first turned negative in March, but has now fallen further to a lowly -1.2%.
New research shows that people aged 75 and beyond saw their personal rate of inflation fall to quite a high 3.9% in April, 70% higher than the official rate of inflation which is 2.3%. Though all groups have benefited somewhat from lower energy bills and food prices, these benefits are coming through at a slower pace for the elderly, with the cost of basic goods and services actually remaining high.
Pensioners who purchased an inflation-linked annuity in the past could see their income fall in the months ahead because these pension annuity products track inflation through the RPI. While the income payable from standard annuities is static and can be eroded by rising prices, an inflation-linked product does protect your retirement income as payments start off lower but then increase over time.
According to the Association of British Insurers (ABI), around 27,000 people bought an inflation-linked pension annuity back in 2007, but there are likely to be hundreds of thousands of people with such pension annuities. Perhaps looking ahead people should consider splitting their pension three ways, between a level pension annuity, a 3% escalating annuity and an RPI linked plan. Or, they could consider income drawdown if they have a larger pension pots.
